Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

The Most Efficient Companies on the Planet

These companies can bring some of their efficiency to your portfolio.

These days, it's not just about working hard. It's more about working hard and efficiently. So why not apply that strategy to your investments?

To measure a company's efficiency, you can examine its return on equity (ROE). This ratio is composed of a company's profit margin multiplied by its asset turnover, multiplied by its financial leverage. It measures how efficiently the company employs its owners' capital. More simply put, it measures your bang per buck as an investor.

Take Altria Group(NYSE: MO) or Freeport-McMoRan(NYSE: FCX), both of which boast ROEs of over 70% -- a lot of concentrated bang in both stocks.

Companies can juice their ROE by employing more debt, so it is important to consider a company's debt level when looking at ROE. All things being equal, though, the higher the ROE, the better: A higher ratio means a more efficient company, which in turn means a more effective executive team managing the business. It's companies like these you should consider for investment in your portfolio.

To uncover some of the most efficient companies around, I ran a screen using The Motley Fool's CAPS screening tool. I looked for companies with:

CAPS ratings of four and five stars, the two highest levels and therefore the most expected to outperform the market.

ROEs of 25% or greater, to find those that are doing the best.

Market caps of $500 million or greater, to stay out of microcap land.

Here are seven companies that I like:

Company

Return on Equity (TTM)

Market Cap (in Billions)

CAPS Rating(out of 5)

Altria Group

78.8%

$44.07

****

Colgate-Palmolive(NYSE: CL)

77.7%

$41.87

****

Freeport-McMoRan

56.6%

$33.46

****

H.J. Heinz(NYSE: HNZ)

46.8%

$14.84

****

McDonald's(NYSE: MCD)

32.4%

$76.59

****

PepsiCo(NYSE: PEP)

29.0%

$105.15

*****

Petmed Express

27.7%

$0.54

****

Quality Systems(Nasdaq: QSII)

26.9%

$1.89

*****

Data from Motley Fool CAPS. TTM = trailing 12 months.

While the stock screener is a great tool, it should only be the first step in your investment research. Examining other levers of specific companies, such as return on invested capital, liquidity, and debt-to-equity ratios, will also help you determine if a company is right for your portfolio. When you include those other metrics in your analysis, you'll get a fuller picture of whether that company is worth buying.

Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 160,000-member-strong investment community help you make better investing decisions.